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By WILLIAM MCELROY, senior vice president, environmental, for Liberty International Underwriters

The Deepwater Horizon blowout was a man-made disaster that riveted the world's attention on the Gulf of Mexico. It is an event that will have lingering environmental, legal, and business repercussions for years to come. Yet there are hundreds of less severe pollution incidents happening every day that are not nearly as easy to see.

In today's interconnected world no operation is safe from the risk of environmental liability. The following sampling of recent environmental incidents underscores the frequency with which they occur:

-- A pipeline failure created a major spill in a river that flows into the Great Lakes. The spill affected not only the pipeline operators but every business in the area, making them potentially liable for contamination on their property with no warning. When it comes to polluted property, a company doesn't need to cause a spill to be exposed to costly cleanup or other damages.

-- A paving contractor mishandled hazardous waste from a highway project. Contact with hazardous materials and regulated waste is a common risk for contractors who are legally liable for proper classification of material, labeling and disposal.

-- Emergency excavation was required for contaminated soil found at a newly constructed school. This is a common problem for any operation that owns property and one that leaves it liable for removal, cleanup and disposal of the contaminated soil regardless of how a problem is discovered or how the contaminated fill arrived on the property.

-- Ammonia was released from a food processing company's refrigeration system. It is easy to forget that something as common as ammonia is a toxic gas that is highly regulated in some applications. Incidents like this frequently involve injuries--to workers and the public--as well as costly evacuations. Liability for this type of occurrence falls on the operation owner and can possibly include the maintenance firm that handles repairs on the equipment involved.

-- Flooding washed contaminated waste materials from a storage site at a factory. The combination of a natural catastrophe and industrial waste or contamination has the potential to create big problems, costly cleanups and major bodily injury risk.

On top of these pollution events from familiar sources are those that lurk in the corners, waiting for science to advance enough for their threat to be revealed.

While today we look for the words "BPA (Bisphenol-A) Free" on cans and containers, it was not that long ago that BPA was simply accepted in the flow of commerce. The risks posed by some hazards can only be assessed and understood over time, and history is rife with examples of materials commonly regarded as safe later showing hazardous properties.

Even some materials that are intended to make lives safer or to protect the environment ultimately prove to have unforeseen risks. Asbestos and methyl tertiary butyl ether (MtBE) are two examples. One recent study recently concluded that air pollution from particulates can increase the risk of heart attack. Other "new" pollution and chemical hazards that have recently received media attention include these:

-- Three common chemicals, notably including nonylphenols, a common component of industrial-grade detergents, are under review by the U.S. Environmental Protection Agency.

-- Environmental impacts from recycling electronic waste from the millions of computers and other products disposed of annually are raising concerns among scientists and regulators.

-- New findings have revealed the toxic effects of coal ash created through electricity consumption.

One new hazard with an immediate impact on a wide range of companies is pollution of surface water from fertilizers, pesticides and other chemicals. The increasing incidence of flash floods now brings these pollutants to businesses that may be far from the contaminated source. Unfortunately, it may take years from the actual date of exposure for public health impacts from the pollution to manifest, leaving a company in the position of never knowing whether disaster will strike long after the actual event is over.

STRICT LIABILITY

In addition to the expense and hassle of pollution cleanup, there are potentially enormous costs for litigation defense and indemnity as well as third-party suits and remedial enforcement actions brought by various environmental agencies. Because environmental problems can be the subject of strict liability, a company can be held accountable for the solution when it may not have caused the problem or may have contributed only slightly to the problem.

This strict liability stance also applies to businesses that help other companies recover from environmental incidents. These service providers--remediation, environmental engineering services, laboratory services, industrial cleaning services, spill response, air- and water-quality consultants, and storage tank removal and installation services--are also at risk from the material they remediate.

Agents, brokers and insurers can help companies determine which environmental insurance liability products offer the most appropriate coverage. Common environmental coverages available in the marketplace include:

-- Pollution legal liability coverage that insures a facility against covered damages such as cleanup costs, property damage and bodily injury to others arising from an environmental event that happens at the facility's property.

-- Storage tank liability coverage that insures storage tanks located above or below ground and covers clean-up costs, property damage and bodily injury related to release of product stored in the company's tanks.

-- Contractors' pollution liability coverage that covers clean-up costs, property damage and bodily injury arising from contracting operations.

-- Professional liability covers the damages caused by alleged acts of negligence by professionals involved in environmental services, such as design of cleanups, testing of samples, preparations of reports and recommendations of solutions.

Moreover, as the world becomes more interconnected, businesses will need to think beyond the hazards that are commonly recognized in their businesses to assure they are fully protected.

The impact from Deepwater Horizon went far beyond the typical classes of business that are normally touched by an oil well blowout.

Companies never before exposed to this type of loss suddenly were checking their insurance policies for operators' extra expense; control of well; business interruption; workers compensation; general liability; marine liability; environmental pollution liability; and directors' and officers' coverage.

Some businesses and individuals were even trying to procure coverage for the consequences of the spill after the event actually happened. The recommended time to assess exposures and buy insurance is before disaster strikes.

There has been a lot of attention given to "systemic risk" in recent years. The Deepwater Horizon catastrophe is a clear illustration of how a single environmental event can create something akin to systemic risk. It is now obvious that a massive environmental disaster can potentially have far-reaching consequences, disrupting the economy of a broad area.

The very notion of this is difficult to grasp. However, the scale of disaster must be viewed in the context of the ability of a business to absorb a loss. Most businesses could never expect to become responsible for a spill of this magnitude.

On the other hand, few businesses could remain solvent and viable in the face of an environmental problem even a fraction of the size of the Gulf spill. Just because the event is less severe than Deepwater Horizon it may not lessen its impact on the companies involved or the people in the vicinity.

Deepwater Horizon reminds us that environmental losses--whether from a man-made catastrophe, a natural disaster, a routine permitted discharge, or from a slowly leaking tank--can be much larger, and impact many more operations, than anyone ever expects.

December 1, 2010

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